IBM delivers strong Q2, ups 2011 outlook

IBM handily topped expectations for its second quarter financials and upped its outlook for 2011.

The company reported second quarter earnings of US$3.7 billion, or US$3 a share, on revenue of US$26.7 billion, up 12 per cent from a year ago. Big Blue got an assist from a weak US dollar and accounting for currency fluctuations revenue would have been up 5 per cent. Non-GAAP earnings were US$3.09 a share. Wall Street was looking for earnings of US$3.03 a share on revenue of US$25.34 billion.

Big Blue also raised its 2011 non-GAAP earnings target to at least US$13.25 a share. Wall Street was expecting US$13.22 a share for 2011.

As expected IBM's software and hardware businesses carried the quarter. Growth markets such as analytics were strong and IBM predicted that its cloud computing revenue will double in 2011. In many respects, IBM's second quarter was about the mainframe upgrade cycle and solid software sales.

In a statement, IBM CEO Sam Palmisano touted the company's businesses and packages of hardware, software and services. On a conference call with analysts, CFO Mark Loughridge said these integrated systems are setting the stage for future growth. Loughridge said:

Our growth is broad based from a segment perspective as well. This quarter we had 24 per cent growth in hardware with great performance in all system brands. These are high value offerings, not low in content. For example, we have 24 new mainframe customers in growth market countries, just since the introduction of the Z enterprise last year. Think of it as planting the flag which provides a great base for future growth. Our software business supports growth markets build-out with WebSphere providing key underlying infrastructure capabilities.

(Credit: IBM)

By the numbers for the second quarter:

Services revenue was up 10 per cent overall with technology services sales up 11 per cent to US$10.2 billion. Business services revenue was up 9 per cent to US$4.9 billion. Services backlog checked in at US$144 billion. Global services operating income checked in at US$2.2 billion.

Software revenue was US$6.2 billion, up 17 per cent from a year ago. Operating income for the unit was US$2.3 billion. IBM said middleware sales — WebSphere, Tivoli, Lotus and Rational — were US$3.9 billion, up 21 per cent from a year ago.

(Credit: IBM)

Hardware revenue was US$4.7 billion, up 17 per cent, with operating income of US$393 million. The unit was led by System z mainframe sales as well as Power systems.

(Credit: IBM)

Gross margins for IBM were 46.4 per cent.

IBM reported America's revenue of US$11.2 billion, up 10 per cent from a year ago. Europe/Middle East/Africa sales were US$8.6 billion, up 16 per cent. Asia Pacific revenue was up 14 per cent to US$6.2 billion. All sales gains were boosted by a weak dollar.